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London, 21 April 2008

• Strong trend in UAE also driven by changes in legislation
• Focus shifting from high basic salaries
• Growth in occupational pension arrangements, private medical plans and other protection and lifestyle benefits

Western-style pay and benefit practices are on the increase in the Middle East, according to a regional survey of current practices and plans within multinational companies, recently conducted by Mercer. The survey showed the traditional focus on high basic salaries and cash allowances is shifting towards long-term incentives a nd ‘protection’ benefits like pensions and medical, life and disability insurance. Additionally, lifestyle benefits such as company car allowances and leave entitlements are increasingly important, while allowances for housing, transport and education remain popular.
 
The changes in benefit practices are being driven by the continuing increase in multinational companies based in the region, an expansion of the expatriate workforce (some 85 percent of Dubai’s population is now expatriate), and greater mobility of expatriates between jobs. In the United Arab Emirates (UAE), changes in legislation have also strongly contributed to the trend.

Retirement benefits

The change in pension practices, in particular, is driven by workforce mobility as many expatriates are now choosing to stay long-term or permanently relocate. Expatriates in most of the Gulf States have no statutory entitlement to local state pensions, and local job moves generally result in the loss of membership of their home country pension plan. This has prompted an increase in employer-provided supplementary benefits.

Commenting on particular developments in the UAE, Yvonne Sonsino, a worldwide partner in Mercer’s international consulting group, said: “The recent relaxation of UAE employment law has made it easier for expatriates to move jobs in the local market. In the past, expatriates would commonly stay for three-year assignments and then return home. Many are now choosing to move on more quickly to other positions in the region.”

She added: “In terms of retirement savings provision, expatriates are only entitled to an end-of-service indemnity that is paid by their employer, and this is generally based on a month’s pay for each year of service. Increasingly, this is viewed by expatriates as a poor level of benefit compared to a pension plan. With the current intense competition for local talent, many companies are now looking to provide top-up pension plans to help attract and retain employees.”

While only 8 percent of multinational companies surveyed currently provide a supplementary pension plan in the UAE, 65 percent said they are looking to change their benefit provision - including setting up supplementary plans. These plans are generally established on a defined contribution basis through offshore investment funds that are often associated with international pension plans.

Ms Sonsino added: “The UAE does not impose salary caps or tax restrictions to act as restraints on the design of local pension plans. This effectively gives us a blank sheet of paper for introducing new plans, and a lot of flexibility to be creative in meeting the needs of particular clients and sections of their workforce.”

The provision of supplementary pension plans across the Middle East varies by country, but the majority of multinationals in these countries confirmed they are planning changes in benefit provision.

A proposed new pension savings law in the UAE could have an important impact on expatriate pension provision. According to recent reports, the General Authority for Pensions and Social Insurance is studying options to bring expatriates in the public and private sectors under the national pension scheme. Ms Sonsino commented: “Such a scheme would particularly benefit unskilled members of the UAE’s expatriate workforce who may not fall under multinationals’ supplementary pension plans.

“An enormous challenge will be to make the administration of this plan workable. This includes keeping track of the country’s huge and geographically diverse expatriate population, and ensuring their money can be successfully repatriated once they return home. It will be essential to get this right in the eyes of the international business community,” she said.

Medical benefits

The UAE’s national health service used to be free to all UAE nationals but this is no longer the case. In addition, private sector companies in certain locations such as Abu Dhabi and the free trade zones must provide all their employees and families with a private medical plan. Consequently, the majority of multinationals in the UAE (85 percent) provide a supplementary medical insurance policy, usually through an insured arrangement. 

Callum Burns-Green, a principal in Mercer’s international consulting group, commented: “There is still some uncertainty about further expected legislative change that could have an impact on medical benefits in the UAE. Most companies pay the entire cost of medical insurance but we anticipate this will change with an element of employee cost-sharing being introduced.”

There are also mandatory requirements for private healthcare in Saudi Arabia and Egypt but the majority of multinational companies in the Middle East (80 percent) provide private medical benefits irrespective of these requirements.

Other benefits

“Many employers are motivated to focus on benefit provision, not only to respond to competitive pressures but also the erosion in value of cash-based remuneration paid in local currencies which are pegged to the weakening US dollar” said Mr Burns-Green.

Almost all companies in the Middle East provide additional perks and allowances to their expatriates. These vary between countries and employers, but the majority provide allowances for housing, schooling and flights home. In the UAE specifically, 86 percent of multinationals in the survey provide housing allowances, while 90 percent provide support with schooling. All participants, without exception, provide allowances for return flights to expatriates’ home country.

A company car benefit is also commonly provided (60 percent of survey participants across the Middle East), while there has been an increase in demand for protection benefits such as death and disability.

Throughout the region, the most popular fringe benefits are long-service awards, mobile phones, social allowances and subsidised health club memberships.

Mr Burns-Green added: “We’ve noted that fewer companies provide meal allowances, domestic assistance and hardship allowances. On this last point, relocation to the Gulf region today is viewed much less as a hardship placement than in the past.”

A summary survey report is available at www.mercer.com/middleeastbenefits. For further information, email middleeastsurvey@mercer.com.

Notes for editors

Mercer’s survey of benefits and HR practices in the Middle East covers seven countries - Bahrain, Egypt, Israel, Kuwait, Qatar, Saudi Arabia and the UAE. In total, 81 survey responses were received from 45 multinationals, representing 15 industry sectors. The survey covers over 500 benefit plans and 61,000 employees throughout the Middle East, and in some countries this survey is the first of its type.

The survey examined protection benefits, lifestyle programmes and other perks/fringe benefits. A similar survey was conducted by Mercer in 2003. Copies of individual country reports are available to journalists by contacting Mercer’s press office on +44 (0) 207 3127 / 3513.

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